What does the travel rule mean for crypto transactions?

Two major factions within the European Parliament propose to expand the "travel rule" to virtually every transaction of digital assets. What is it, and how will it possibly affect cryptocurrency transactions in the future? Find out below.

A possibly transformative digital assets regulation draft is threatening to shake up the European crypto landscape.

A policy blueprint

On Feb. 9, two major factions of the European Parliament submitted a policy blueprint. It aims to apply existing regulations designed to counter money laundering and terrorism financing to all crypto transactions. The Belgian parliament member (MEP) Assita Kanko (European Conservatives and Reformists) and Spanish MEP Ernest Urtasun (Greens–European Free Alliance) have spearheaded the draft.

In fact, the current version of the "travel rule" obliges banks and payment companies to store information that "travels" between payers and recipients. So, the policy only triggers when a transaction exceeds the threshold of 1,000 euros.

FATF or?

However, some have pointed out the regulation blueprint resembles the official advice of the Financial Action Task Force (FATF). This is an intergovernmental organization that the G7 group of nations founded  to combat money laundering and terrorism financing.

“Is the FATF supposed to have such a strong influence on how European policy is shaped?" asked Thomas Spaas, a Belgian attorney specializing in crypto regulation. “With such legislation, crypto exchanges will have to do even more of what they were already doing anyway: keeping records of their customers. This means yet more paperwork for crypto companies and another obstacle for new entrepreneurs to overcome.”

In fact, the regulation was introduced independently of FATF.

New "Travel Rule" for Crypto

For instance, Kanko and Urtasun propose to drop the threshold for crypto transactions. It would effectively force exchanges and wallet providers to record the "travel information" for every single transfer. European authorities would obtain the name of the sender and the recipient, also the sender's home address, passport number and the wallet address of both.

Kanko and Urtasun argue in their draft that criminals often use small  transactions with cryptocurrencies to fund terrorism or launder money.  On the whole, such a loophole would enable the use of digital assets to fund and hide criminal activities. Illicit capital can anonymously move without any geographical limitations with a good chance of remaining undetected, the MEPs explain. This would justify the need to remove the 1,000 euro threshold for crypto transactions.

So, the blueprint also mentions the curation of a white list for crypto exchanges that successfully implemented satisfactory KYC procedures for users. They could possibly be exempted from having to record every single transaction.

Article source: Coindesk.com

Image source: Unsplash